How the wayward Indian subsidiary of a German wind turbine maker quashed some of its owner’s intellectual property rights
In January 1994, Enercon, a 10-year-old German wind turbine maker, acquired a majority interest in a newly created Indian company called Wind World Power. The company was renamed Enercon India and structured as a joint venture in which Enercon came to own 56% and the Mehra Group, which had founded the company, retained 44% of the shares.
Like many niche operators in Germany at the time, Enercon was looking to expand into emerging economies. Yet somehow it lost control of its Indian investment. A series of disputes erupted between the two companies over the transfer of technology and the supply of spare parts. Then late last year, acting on an application filed by Enercon India, the Intellectual Property Appellate Board (IPAB) shocked the German company by revoking 12 Indian patents owned by its founder and controlling shareholder Aloys Wobben.
“We have completely written off our investment in Enercon India,” Enercon’s legal counsel, Stefan Knottnerus-Meyer, told the New York Times shortly after the IPAB’s decision was announced.
By all accounts the relationship between the two companies was cordial during their first decade of working together. Enercon India, under its managing director Yogesh Mehra, the owner of the Mehra Group, grew to encompass 16 subsidiaries and 11 associated companies. It established manufacturing plants to produce wind energy converters and concrete towers.
Enercon, meanwhile, attained market leadership in Germany and was hailed as one of the “hidden champions” of German industry by Hermann Simon, a renowned management consultant.
Despite owning a majority stake in its Indian joint venture, the German company took a hands-off approach to its management. Explaining this, Rainer Böhm, a Hamburg-based partner of Eisenführ Speiser, which represents Enercon, says that in the ‘90s, Enercon was much smaller, less international and had “more limited management capacity”. He adds that to a certain extent “it trusted its local partner to keep their best common interest in mind.”
As such, effective control was vested with Mehra, who had run the company since its inception. “He was very independent,” says Böhm.
But when a long-standing technology licencing agreement between the companies expired in 2006, the relationship began to sour. Serious differences emerged when the parties attempted to negotiate a new deal, and while the supply of parts and technology from Enercon to Enercon India initially continued, the rift between the two companies only deepened.
In the end, the impasse became so great that the parties were unable to agree even on whether an agreement had been reached. Enercon maintains that a new intellectual property licencing agreement was signed on 29 September 2006, but Enercon India claims that this agreement was merely a draft.
Then in October 2006, Enercon offered to buy 6% of the Mehra Group’s shares in Enercon India for €40 million (US$50 million). A Company Law Board (CLB) order of October 2007 states that the Mehra Group’s lawyer told the board that the offer had been accepted, but was later rejected when Enercon informed Mehra – by way of a text message – it wanted 12% of the shares for €40 million, not just 6%. The Mehra Group alleges that after this incident Enercon started acting against the interests of Enercon India.
Enercon India’s lawyer, Zia Mody, the managing partner of AZB & Partners, claims that “when Mehra refused to accept Wobben’s offer of a stake purchase, Enercon stopped supplies of all the spare parts to make wind power generators.”
According to Mody, Mehra was forced to get a court order obliging Enercon to resume supplies, but they resumed only briefly. “To keep the plant running, Mehra went out to get parts from other sources, but wherever he went, Enercon wrote letters attacking the suppliers and telling them not to supply,” Mody says.
Without access to its German parent company’s technology, Enercon India’s operations were severely disrupted.
In October 2007, the German company filed a petition with the CLB alleging that the Mehra Group was guilty of the mismanagement of Enercon India and of concealing the affairs of the joint venture.
It requested the removal of Yogesh Mehra and another representative of the Mehra Group from their posts and changes to the agreed procedure for the removal of directors from the board. It also sought to gain possession of the Mehra Group’s shareholding in Enercon India.
The Mehra Group, which filed a counter claim at the CLB, denied the allegations and argued that Enercon had gone to the CLB with the ulterior motive of forcing it to sell its stake in the joint venture at a low price.
The CLB is yet to make a final order on Enercon’s petition, but has issued two interim orders. The first, passed on 29 October 2007, directs that the status quo be maintained with regard to all pending issues and that “no action in relation to the same shall be taken”. The second interim order, passed on 19 May 2008, states that “without leave of the board, no board meeting is to be convened or held and no circular resolution is to be proposed to be circulated.” According to Böhm, there are now around 20 applications made by both parties against each other pending before the CLB.
Then, in a bizarre twist, in September 2008, two German executives of Enercon were summoned to a Mumbai police station and questioned for more than five hours by the Economic Offences Wing of the Mumbai police. Böhm, who had also been in Mumbai at around that time but was not questioned, says, “I was flying out of India a day before. I was simply fortunate.”
“The criminal proceedings were filed to harass our clients and their advisers,” says Vivek Vashi, a Mumbai-based partner at Bharucha & Partners, who is Enercon’s lawyer in India. He adds that a stay against these proceedings was subsequently obtained on “our contention that it is a purely civil dispute”.
In spite of this, no employee from Enercon has visited India since September 2008. “I am the only one flying in,” confirms Böhm.
Charting a new course
Meanwhile, the dispute was veering into the highly charged realm of patent law. In a new attempt to gain access to Enercon’s technology, Enercon India – a company in which Wobben himself is indirectly the majority shareholder – applied to the IPAB for the revocation of 19 patents owned by Wobben on the grounds that they lacked inventive step and originality. The application was made in January 2009.
The contested patents were among 140 granted to Wobben between 2004 and 2006. They related to technologies being used by Enercon India.
Parthasarathy R, a Chennai-based IP partner at Lakshmi Kumaran & Sridharan represented Enercon India in the action.
Tug of war
Wobben’s defence of his patents was not based on the technical details of his inventions. Instead, he challenged the authority of a company in which he owns the majority interest to initiate such action against him. When this argument failed to impress the IPAB, he took his case to Madras High Court, arguing that not only did the articles of association of Enercon India bar it from initiating such action, but that the CLB had ordered that no further action should be taken without its permission.
These assertions were disputed by Mehra, who had produced an April 2007 resolution by Enercon India’s board, authorizing him to defend and initiate proceedings on the company’s behalf. Mehra claimed that the resolution gave him carte blanche to file and institute patent revocation proceedings on behalf of the company.
Pravin Anand, who by this time was representing Enercon, said that his client had been unaware of the existence of the document until it was produced at the IPAB. Enercon subsequently challenged the validity of the resolution in the CLB, but a ruling has yet to be made.
Böhm believes that the disputed resolution was passed at a board meeting that was not attended by Enercon’s representatives. “It is a board resolution where my client, as a majority shareholder, was not participating,” he says.
The disputed document appeared to work in Mehra’s favour. On 8 September 2010, Madras High Court directed the IPAB to make an order on Wobben’s patents within three months. Then, over three days in November and December 2010, the IPAB passed orders revoking 12 of the 19 contested patents.
While doing so, the IPAB acknowledged that it lacked the competence to decide the “validity, legality and propriety” of the disputed board resolution, but said that as the document had not yet been deemed null and void, it had to assume it was “perfectly valid and legal”.
The IPAB members who made the orders were its vice-chairman, S Usha, and its technical member, S Chandrasekaran. However, Enercon argues that Chandrasekaran, who retired a day after the last of the revocations was ordered, was not qualified to be part of the proceedings. He had previously held a position as controller of patents, during which time he had been instrumental in granting the contested patents in the first place.
“It is a clear breach of the principals of the administrative law,” says Anand. “It is like sitting in appeal in your own order.”
No clean sheet
Enercon is no stranger to patent disputes. Indeed, as Parthasarathy of Lakshmi Kumaran & Sridharan points out, two of the patents revoked by the IPAB were previously revoked by a court in the UK. “In the UK court, Wobben himself admitted that the claims of one of the patents are invalid,” Parthasarathy says.
This point was not missed by the IPAB. In its revocation order, passed on 2 December 2010, it noted that the UK court had held the patent in question “invalid over insufficiency, added matter and obviousness … and a plethora of prior arts.” The IPAB also observed that “there has been no effort from the respondent [to explain] why the UK judgment will not apply here.”
In the US too, Enercon had encountered patent problems. It lost a dispute there in the mid-1990s, after a US-based wind turbine maker accused it of patent infringement. Consequently, while Enercon has operations in Canada, the US remains out of its reach.
But none of this should have had any bearing on the fortunes of Enercon’s patents in India. Indeed, the IPAB was not impressed by the German company’s contention that the patents in question were still valid in other countries. “The grant of patent in other countries does not give any assurance or a presumption as to the validity of grant of patent or even investigation during revocation proceedings,” said the board in one of its orders.
Litany of court cases
As expected, Enercon cried foul. On 20 April this year, Madras High Court admitted writ petitions from the company appealing nine of the 12 patent revocations. The next hearing is due to be held in June and the court has ordered that the status quo be maintained until this time.
Enercon was represented in the high court by two senior advocates, PS Raman and SC Agarwal, who are based in Chennai and Delhi respectively. Arvind Datar, a Chennai-based senior advocate represented Enercon India.
In addition to this appeal, there is still one design, one trademark and six patent infringement suits pending before Delhi High Court. The suits were filed by Enercon against Enercon India in 2008. Enercon India, in turn, filed counter claims. All of these suits are awaiting judgment.
The three patent revocations that were not included in the appeal before Madras High Court were omitted because they were already included in the batch of infringement cases filed by Enercon in Delhi High Court.
Indeed, Enercon India had mounted a twin assault on Wobben’s patents by initiating action in the IPAB on three patents that were already the subject of litigation in Delhi. Böhm says that this was a “dirty trick” played on them by Enercon India’s extremely able lawyers.
In February, Enercon had asked Delhi High Court to safeguard these three patents from any actions by the IPAB until the Delhi lawsuit had been resolved. But the Mehra Group challenged this request. It argued that since the patents were revoked by the IPAB in Chennai, Delhi High Court does not have jurisdiction over them.
In addition to these cases, in the latter half of 2009, Enercon had filed suits in district courts in Karnataka against some of the customers of Enercon India, including Tata Power and CLP Power, alleging they were using products that infringed its patents. No judgments have yet been made.
Breaking the stalemate
But the elephant in the room continues to be the litigation in the CLB. And here too, there has been little progress.
Mody of AZB & Partners blames the delay on Wobben. She argues that while Mehra’s position at the CLB has been that the “German company should decide if it wants to buy, sell or continue with the present arrangement,” Wobben has repeatedly insisted the CLB should appoint a German valuer. “Why?” asks Mody. “What’s wrong with Indian valuers?”
Enercon’s lawyers see things differently. “There is a complete stonewalling to our demands for information about the company,” says Vashi. “We have to file applications under the Right to Information Act to get information.”
Enercon says it has attempted to break the deadlock through two sets of conciliation talks. The second set of talks, which took place in 2010, resulted in the agreement of a draft settlement in which Enercon would cede full ownership of Enercon India to the Mehra Group and exit the Indian market for five years and Enercon India would be allowed to use the licenced technology on a temporary basis during this period. However, the talks broke down and the agreement was never signed.
While the complicated saga continues to unfold, stakeholders, legal professionals and other observers are watching developments intensely. And the lawyers involved are not holding back.
Vashi at Bharucha & Partners is adamant that his client has been wronged. “We are looking to enforce and protect Enercon’s commercial rights in India and will do whatever is necessary,” he says.
Mody at AZB, however, feels it is her client who has got the raw deal. She argues that with royalties and other payments from Enercon India, the German company has recouped its investment several times over. Yet, despite this, Enercon India “never declared any dividends so Mehra has not got anything.”
Much of the controversy has centered on the IPAB’s decision to revoke Wobben’s patents. The ruling was criticized in the Western media, with some reports suggesting that it was indicative of problems in the Indian judicial system. But Parthasarathy at Lakshmi Kumaran & Sridharan is dismissive of such claims. “The way the IPAB approached the revocation is not in any way different from what would have happened in the United States or the European Union,” he says.
Pravin Anand continues to hold that there was a misapplication of the principles of patent law in the IPAB’s order and that the decision to revoke the patents was fundamentally flawed. He also questions the logic of the Mehra Group’s argument, saying: “After having acknowledged the intellectual property rights and taken licences, having paid royalties, enjoyed all benefits flowing from them for many years and then to try and seek a cancellation on the ground that these technologies are useless and wrong – it appears to be highly illogical.”
Mahua Roy Chowdhury, a patent attorney at Solomon & Roy, has a different perspective. “If a licencee comes to know at a later point of time that the patent which he is using actually is not an invention, or the patent should not have been granted, he may take such a step,” she says.
In spite of this, Roy Chowdhury believes that the German company might yet have an ace up its sleeve. It could argue, for example, that the Indian partner used privileged information to get the patents revoked, and that this constitutes a breach of trust. “It all depends on what actually happened [inside the company],” she says.
If the patents are ultimately lost, Roy Chowdhury speculates that the eventual winners could be other wind turbine manufacturers, such as Suzlon and General Electric, which would be able to use the technology freely and even export it to countries where Wobben does not have patents.